The Subprime Mortgage Crisis

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What is prime Mortgage:

What is prime Mortgage Using of house or land or any thing that worth enough against the money one want to take,should be kept as a security to get money from bank or financial institution is known as primemortgage OR Loan to borrowers with perfect credit criteria

Subprime mortgage :

Subprime mortgage Subprime mortgages are loans to borrowers with ‘imperfect’ credit criteria

What is prime loan :

What is prime loan Prime loan in financial term means loan offered or taken by a customer who have a good repay credit Loan Given to those customer who can prove their income with sufficient document are called prime customer OR Loan to borrowers with perfect credit criteria

The Subprime Crisis:

The Subprime Crisis

What is subprime :

What is subprime Subprime is a policy that is made by financial institution and private bank in USA to offer home lone to the people who don’t have good repay credit, at a very high and fluctuated interest rate to earn more profit

What are subprime mortgages?:

What are subprime mortgages? Those who qualify for the most ideal mortgages with the best interest rates are those with good credit scores and minimal debt. A subprime mortgage is a type of loan granted to individuals with poor credit histories who would not be able to qualify for conventional mortgages. Subprime mortgages charge interest rates that are above the typical interest rate because of the risk that is involved on the part of the lender.

Slide 7:

"The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of the financial system." International Monetary Fund, World Economic Outlook, April 2008

The Subprime Mortgage Crisis Explained: :

The Subprime Mortgage Crisis Explained : Up until 2006, the housing market in the United States was flourishing due to the fact that it was so easy to get a home loan. Individuals were taking on subprime mortgages, with the expectations that the price of their home would continue to rise and that they would be able to refinance their home before the higher interest rates were to go into effect. 2005 was the peak of the subprime boom. At this time, 1 in 5 mortgages was subprime. However, the housing bubble burst and housing prices had reached their peak. They were now on a decline.

The Subprime Mortgage Crisis Explained: :

The Subprime Mortgage Crisis Explained : At this point, many who had taken on these subprime mortgages and their interest rates were beginning to “reset” to the higher rates, making their monthly mortgage payments much higher than before. People then began to sell their homes – but there was a problem to doing this. Since the price of homes had severely decreased, they did not have enough money after selling to cover the amount of the mortgage.

The Subprime Mortgage Crisis Explained: :

The Subprime Mortgage Crisis Explained: If a person could not sell their home, this ultimately left the homeowner with one option, and that was to DEFAULT. When a home is defaulted, this is the first step towards foreclosure. If the defaulted loan isn’t taken care of in a given amount of time, the bank resumes responsibility of the home and is put up for auction.

The Subprime Mortgage Crisis Explained: :

The Subprime Mortgage Crisis Explained: The process of auctioning off these houses creates a increase in supply of homes in the market, which will decrease the home prices.

Impacts of the Subprime Mortgage Crisis: :

Impacts of the Subprime Mortgage Crisis: Major banks suffered from huge losses. Lehman Brothers went out of business. Merrill Lynch had to sell itself to Bank of America for a fraction of its former value Countrywide Financial Corporation, the biggest U.S. mortgage lender, eventually gets taken over by Bank of America. In Sept 2008, AIG collapses as it could not afford to pay for all of these US mortgage defaults. The US government nationalises AIG by becoming 80% shareholder.

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By the end of 2008, home prices had dropped 20% from their 2006 peak.

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